Kass: Kudlow Recap

All in all, last night's 'Kudlow & Company' was a great show, which covered many bases and opinions.
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This blog post originally appeared on RealMoney Silver on May 20 at 8:04 a.m. EDT.

During last night's appearance on "Kudlow & Company," I once again encountered and disputed the bullish chorus.

While at the studio, in preparation for the show, the following tune was playing in my earphone -- you can't make this stuff up! -- which neatly (and more eloquently than I can) summarizes my current market view.

That's life, that's what all the people say.
You're riding high in April,
Shot down in May
But I know I'm gonna change that tune,
When I'm back on top, back on top in June.
-- Frank Sinatra, "That's Life"

Without further ado, let's go to the tapes.

Talking Buffett

Sir Larry's first segment was a general discussion on why I am short

Berkshire Hathaway

(BRK.A) - Get Report

.

TheStreet.com

readers are well aware of my

analysis

of Berkshire and my

view

of Buffett's recent style drift. Last night, I made the additional point that Buffett, despite the $1.2 billion derivative loss at Berkshire in first quarter 2008, is getting a

free pass

from the media, who have underreported and sometimes has even ignored Buffett's latest swings at some bad pitches.

Larry's Goldilocks Scenario

Dennis Gartman, a learned market sage who I immensely respect,

contended

that stocks are moving much higher and suggested that "everyone I know is bearish" and that betting against the American consumer is "a bad bet." I argued with Dennis that a negativity bubble existed at the

SocGen

market bottom and in the Uncle Vinnie Farrell market retest in March, but, with the VIX and put/call ratios at lows that existed at the market peak seven months ago, that bubble of pessimism has been deflated.

Scudder's Dr. Robert Froelich says not to underestimate the consumer and the buying that will follow the tax rebate. Last night, I argued against a positive view on the consumer -- indeed, I am at the polar opposite of Dr. Bob, as I believe that the consumer is the Achilles' heel of the U.S. economy. The U.S. consumer is spent-up, not pent-up, and levered to the gills.

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I mentioned that

SanDisk's

(SNDK)

report yesterday afternoon -- the company sells NAND-based flash memory used in many electronic products -- was testimony to further consumer weakness in the months to come and that the negative effect of the ever-rising price of oil will act as a punitive tax on the consumer. As well, there were thin-reed indicators -- such as a 15% drop in the average daily handle at the most recent Keeneland Racetrack thoroughbred meet, a decline in elective medical and dental cosmetic procedures and empty seats at NBA games -- that indicate the state of the consumer is far from healthy.

Bank of Montreal's Andy Bush was encouraged principally by the market's price action, which is difficult to argue with. Moreover, he was optimistic for a turn in housing, which is easy to argue with. By contrast, I suggested that his view of a housing recovery was far too optimistic based on first-quarter homebuilder conference calls, weak traffic during the important Spring selling season, pressured disposable incomes and a record level of unsold housing inventory.

The fact that stocks are rising does not mean that the fundamental backdrop is improving. If we have learned anything over the last decade or so, it is that stock prices often disconnect from fundamentals. For example, saying that the economy's health is improving because the U.S. stock market is rising is like saying two and a half years ago that the housing market was healthy because home prices were moving ever higher.

The Microsoft/Yahoo!/Icahn Struggle

Lynx-eyed

New York Times

reporter, Andrew Ross Sorkin,

felt

as though all three parties could lose. I thought he had it right, adding that the stewardship of

Microsoft's

(MSFT) - Get Report

Ballmer must be questioned throughout this whole process. Dr. Bob felt that Microsoft's potentially bright future is conditional upon having a presence on the Internet. Dennis thought Icahn would end up the winner.

Western Europe Weakness Bode Poorly for the U.S.

Dr. Bob and Dennis

said

that, while mature Europe is moribund, Eastern Europe is thriving in its own free market capitalism. My view is that Europe is about six months behind our domestic economy's woes. Housing is hurting, credit conditions have worsened, and the European consumer is levered. With about 8% of the

S&P 500's

revenue dependent on the European economies (and an even greater level of profits), my pessimistic view of corporate profits (vis-à-vis consensus) is a mainstay to my ursine market view.

More on Housing's Bailout

We then discussed the housing bailout. The state of the housing market is in disrepair, and we need a Marshall Plan similar to Barney Frank's to kick-start a recovery, or at least stabilization. Dr. Bob said that "whenever the government gets involved in anything, it's a poor investment thesis." Larry suggested that the credit crisis is moving toward being repaired (a housing recovery should follow) and echoed Dr. Bob's view of government interference.

The Nuclear Solution

Larry and the others encouraged nuclear as a solution to our energy woes. I thought it was premature to call for a McCain victory, which would be positive for nuclear-related stocks, as Intrade has Obama with a big lead over the Republican Presidential candidate.

Doug Kass is the author of The Edge, a blog on RealMoney Silver that features real-time shorting opportunities on the market.

At the time of publication, Kass and/or his funds were short Berkshire Hathaway, although holdings can change at any time.

Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.